Exchange Traded Funds of the Year: Inverse VIX ETFs

For much of 2012, the CBOE Volatility Index, or VIX, has reflected greater complacency in the markets, fueling the rapid growth in inverse VIX related exchange traded funds. But the government’s impasse over the so-called fiscal cliff is stirring up the pot and the funds took a hit last week as the VIX spiked.

The top performing funds of the year are the Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV) and the ProShares Short VIX Short-Term Futures ETF (NYSEArca: SVXY), which were up more than 200% year to date until last week. Both funds hit lifetime highs this month. [CBOE Volatility Index]

These exchange traded products are designed to move in the inverse, or opposite, direction of VIX futures contracts. The VIX is known as Wall Street’s fear gauge. XIV and SVXY let investors bet against volatility. Brendan Conway at Barron’s calls XIV a “kind of backdoor bullish bet on the stock market.” [Inverse VIX ETFs]

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